RBI prescribes Rs.500 cr minium capital for new private banks

The apex bank seeks comments on draft norms by October 31

The Reserve Bank of India on Monday released the draft guidelines for licensing of new banks in the private sector. The norms stipulate a minimum capital requirement of Rs.500 crore and limited the new banks' non-resident shareholding at 49 per cent.

“New banks will be set up only through a wholly owned non-operative holding company (NOHC) to be registered with the Reserve Bank as a non-banking finance company (NBFC), which will hold the bank as well as all other financial companies in the promoter group,” the RBI said in its draft guidelines.

The minimum capital requirement will be Rs.500 crore. Subject to this, the RBI said, “the actual capital to be brought in will depend on the business plan of the promoters.” The NOHC would hold a minimum 40 per cent of the paid-up capital of the bank for five years from the date of licensing of the bank. Shareholding by NOHC in excess of 40 per cent would be brought down to 20 per cent within ten years and to 15 per cent within 12 years from the date of licensing of the bank.

“The aggregate non-resident shareholding in the new bank shall not exceed 49 per cent for the first five years after which it will be as per the extant policy,” said the RBI.

Entities/groups in the private sector, owned and controlled by residents, with diversified ownership, sound credentials and integrity and having successful track record of at least ten years will be eligible to promote banks.

However, entities or groups having significant (10 per cent or more) income or assets or both from real estate construction and/or broking activities individually or taken together in the last three years will not be eligible.

Independent directors

“At least 50 per cent of the directors of the NOHC should be independent directors. The corporate structure should be such that it does not impede effective supervision of the bank and the NOHC on a consolidated basis by the RBI,” said the central bank.

The RBI further stipulated that the business model of the bank “should be realistic and viable and should address how the bank proposes to achieve financial inclusion.”

Among its other conditions, the RBI noted that the exposure of a new bank to any entity in the promoter group would not exceed 10 per cent and the aggregate exposure to all the entities in the group would not exceed 20 per cent of the paid-up capital and reserves of the bank.

The RBI further stipulated: The bank shall get its shares listed on the stock exchanges within two years of licensing; it shall open at least 25 per cent of its branches in un-banked rural centres (population up to 9,999 as per 2001 census); and existing NBFCs, if considered eligible, may be permitted to either promote a new bank or convert themselves into banks.

In respect of promoter groups having 40 per cent or more assets/income from non-financial business, certain additional requirements have been stipulated.

The RBI has invited views and comments on the draft guidelines from banks, non-banking financial institutions, industrial houses, other institutions and the public at large.

Suggestions and comments on the draft guidelines would be sent by October 31 to the RBI.

The RBI said that final guidelines would be issued and the process of inviting applications for setting up of new banks in the private sector would be initiated after receiving feedback, comments and suggestions on the draft guidelines, “and after certain vital amendments to Banking Regulation Act, 1949, are in place.”